Don't quota me

On Friday 11 February the Prime Minister launched a new approach to government procurement. As part of his Big Society vision, public services would be thrown open to competition and there would be a "right to bid" for delivery of public services. David Cameron also stated that the government’s ambition is that "twenty-five percent of all government contracts are awarded to small and medium-sized enterprises". The ambition was repeated by Francis Maude the following Monday at the launch of the government’s Social Investment Strategy. Not so fast Within days Whitehall 'sources' were briefing that this commitment to 25% had been dropped. Quite rightly, as EU procurement rules do not allow it. Frances Maude has now gone on the record in an interview with Public Finance confirming:

"We’re unlikely to have rigid quotas. We want public services to be opened up and to have a multiplicity of providers – but it’s going to be hard to define what proportions there should be. What you want is to have openness and encouragement for diversity without trying to enforce a particular template."

It is clear the direction of travel is to deliver more public services through commissioning with the private and voluntary sector. It is also clear that the government wants to encourage a greater diversity of provision, and to reduce the burdens on firms bidding for contracts. Reducing the costs of bidding is a good place to start, and this will benefit all firms, not just small and medium sized enterprises. More broadly, however, the government needs to look at the challenges facing commissioners in creating markets for the provision of public services. Commissioners to the rescue As we move towards a more complex world of competing providers (including mutuals, charities and the private sector) commissioners will need to up their game considerably. The drive towards increased used of payment by results makes them a pivotal role in deciding the shape of future provision of public services. Who gets the contracts and how they will work is not a simple procurement exercise. The design of the commissioning process will shape what kinds of markets develop, including how charities and SMEs can participate on a level footing. Whitehall should focus its attention here. The Institute for Government made a number recommendations in a report in December calling on Whitehall to:

• agree as far as possible a common level for commissioning for outcomes as close as possible to the end user;
• cooperate across departments to explore common commissioning structures to allow firms to bid to deliver a number of related outcomes – e.g. tackling unemployment and reoffending. Many users will have multiple needs, and outcomes are not as simple as “job” or “not offending”; and
• concentrate on market structures, the current market for provision, and how to grow supply amongst providers over time. This might include considering staging of payments and working through the problems of availability of finance to build capacity.

If the market is well designed, the need for quotas should not be an issue as the best value bidder wins. To make sure commissioning works, Whitehall needs to improve its skills and cooperate across boundaries to commission for the right outcomes in the right way to make the system work smoothly. Growing the diversity of provision is going to be important, but setting an arbitrary target is not the thing to worry about, it is the way the market will operate that matters.